Economic Authorities Warn: "Middle East War Has Heightened Downside Risks to the Economy"

[Financial News] The shock to the real economy is growing as geopolitical risks stemming from the Middle East war expand. Authorities are concerned about rising prices and heavier living costs caused by higher international oil prices, as well as weakening consumer and business sentiment.
On the 17th, MOEF stated in the April issue of its "Recent Economic Trends" report that "downside risks to the economy have increased due to the impact of the Middle East war." This raises the level of warning compared with last month, when the ministry had only pointed to "concerns over increasing downside risks," reflecting the prolonged nature of the conflict.
Regarding the domestic macroeconomy, MOEF noted, "Exports led by semiconductors have continued to perform well, and domestic demand, including consumption, has also been on a recovery path. However, there are concerns that the Middle East war could push up prices and increase the burden on people’s livelihoods."
On the global economy, the ministry assessed that "the Middle East war and the imposition of tariffs by major countries, which are worsening the trade environment, are amplifying volatility in international financial markets and energy prices, raising concerns over slower trade and growth."
These downside risks to the real economy are also evident in key indicators.
In March, consumer prices rose 2.2% from a year earlier, mainly due to high oil prices linked to the Middle East war. Petroleum product prices surged 9.9%. This was the steepest increase in three years and five months, since October 2022 (10.3%) following the outbreak of the Russo-Ukrainian War.
Overall consumption is also sluggish. Credit card spending at discount stores in March fell 32.5% year-on-year. The decline widened from the previous month’s 10.6% drop.
The consumer sentiment index came in at 107.0, down 5.1 points from the previous month. The size of the decline was the largest in one year and three months, since December 2024 during the martial law situation, when it fell by 12.7 points.
There are, however, some positive signs. Domestic sales of domestically produced passenger cars turned to growth, rising 8.0% year-on-year, and total domestic credit card spending increased 8.4%, the largest gain since September last year.
Total industrial production in February increased 0.5% from a year earlier. Semiconductor output jumped 27.1%, and machinery and equipment repair rose 35.4%.
By contrast, mining and manufacturing production fell 2.2% year-on-year. The declines were particularly steep in automobiles (down 19.3%), rubber and plastics (down 16.4%), and machinery and equipment (down 9.4%).
Exports remain solid, driven by semiconductors.
Exports in March totaled 86.63 billion dollars, a sharp increase of 49.2% from a year earlier. Average daily exports, adjusted for the number of working days, rose 42.7% to 3.77 billion dollars. Key items such as computers (up 189%) and semiconductors (up 151%) are leading exports to record highs.
Lagging indicators such as employment have worsened, particularly among young people.
The number of employed people in March was 28.795 million, up 206,000 from a year earlier, marking a second consecutive month of increases in the 200,000 range. The employment rate for those aged 15 and over rose 0.2 percentage points year-on-year to 62.7%.
However, the employment rate for young people aged 15 to 29 fell 0.9 percentage points from a year earlier to 43.6%, extending its decline for the 23rd consecutive month.
MOEF stated, "To minimize the impact of the Middle East war, we will maintain our emergency economic response system and swiftly execute the supplementary budget."
skjung@fnnews.com Jung Sang-geun Reporter